Tuesday, February 20, 2018

LOL. The Seattle socialists think they are going to collect oodles of cash with their creepy soda tax.Charles Hughes explains why they won't:

Seattle recently became the latest major city to enact a sweetened beverage tax. In response to the new levy, some retailers have calculated how much of the price is due to the tax, and customers are reeling from sticker shock. One local reporter found thatthe tax added $10.34 to a case of Gatorade, bringing the final price to more than $26.00....

One of the justifications for beverage taxes is that customers will respond to price changes by reducing consumption of taxed beverages. The mechanism here is straightforward: tax something to get less of it. If people were to substitute diet sodas or other, less-harmful beverages for sugared sodas, they would be healthier

The City of Seattle denies that consumers respond to higher prices. On the city government’s website explaining the tax, the Finance & Administrative Services Department takes pains to mention explicitly that the “tax is not collected by the retailer nor is the tax burden intended to fall onto the consumer. The intent of the sweetened beverage tax is to tax the distributions of sweetened beverages into Seattle for retail sale in Seattle.”

If the burden of the tax is supposed to completely bypass the consumer, as unlikely as that might be, what would drive them to substitute away from the unhealthy products that the government is taxing in the first place?Whatever the City states, not all of the tax will be borne by distributors, some of the burden will fall on stores and consumers, and they will respond to the change in price in some way. The less-visible Frequently Asked Questions document for the tax acknowledges this, as “the ordinance does not prohibit a business from passing on the expense of this tax....

>Many people are likely to avoid the tax by traveling to other untaxed locations to purchase groceries. Costco tells its customers about locations outside the city that are not subject to the beverage tax. One customer told KIRO, a local news station, that she would go to the location in a nearby town. People will undoubtedly follow her lead, so the tax will have limited success in its health-related goals while also harming local businesses and failing to generate tax] revenue.

I have a question for you RW. How is this story reconciled with Rothbard's discussion in MES on sales tax. Rothbard (Austrians) said that sales taxes do not get passed on to consumers because prices are determined by the consumers, not the cost of production. Is this simply an immediate run effect that will lead to a decline in prices at these stores?

If I recall correctly, Rothbard's point was that if producers could have charged a higher price before the tax was levied, they would have done so, so they can't pass on the tax, ceteris paribus, because it would be above the price they think consumers will pay. So if they have to swallow the tax, this increased cost puts the marginal producer out of business, causing a decrease in supply, which leads to higher prices as consumers bid for the now smaller supply(ceteris paribus).